What Lies Ahead For NetApp’s Software, Entitlements & Maintenance Sales?
NetApp has witnessed meaningful growth in its software entitlements and maintenance revenue in the last few years, even as its core storage product revenues have suffered in the same period. Software entitlements and maintenance (SEM) includes product upgrades, bug fixes and patch releases for existing products on an ad hoc basis. The growth in NetApp’s product sales over the past few years is also reflected in the SEM division, as shown in the table below. A key point to note is that since it is a purely software division, its gross margin (over 95%) is significantly higher than the company-wide gross margin (60-65%).
On the other hand, NetApp’s unbundled storage software sales have gone down since 2011, owing to an increase in converged systems sales and an increasing proportion of in-built software associated with storage products. [1] As a result, the revenue generated via independent storage software sales has fallen drastically in the last few years as shown below.
This trend could continue over the next few years, as customers are likely to continue to purchase converged systems rather than independent software or hardware. [2] Correspondingly, storage software revenues are likely to fall while SEM revenues could continue to rise. With product sales unlikely to pick up significantly over the next couple of years, SEM revenue should continue to increase as a percentage of product sales in the near term, as shown below.
Have more questions about NetApp (NASDAQ:NTAP)? See the links below:
- What’s NetApp’s Fundamental Value Based On Expected 2016 Results?
- What’s NetApp’s Revenue and EBITDA Breakdown?
- How Has NetApp’s Revenue and EBITDA Composition Changed In The Last Five Years?
- What Will NetApp’s Revenue And EBITDA Look Like In 5 Years?
- How Crucial Is Hardware Maintenance To NetApp’s Product Sales?
- What Is NetApp’s Presence In The Storage Systems Market?
- ODM Storage Vendors Gain Share From Giants: EMC, HP, IBM, NetApp Lose Market Presence
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- Top Five Hot Data Storage Trends, Data Center Knowledge, February 2014 [↩]
- Software-Defined Storage Must Address Enterprise Storage Systems and the Cloud, Tech Target, January 2015 [↩]